09/20/2013

12 Dos and Don’ts for Angel Investors

Earlier in the summer, Fenwick hosted a program for new
angel investors with RockHealth. As part of the
event, Ash Fontana of AngelList presented a primer for new angel investors
that included a dozen dos and don’ts that are worth repeating.

Don’t recommend a
deal you wouldn’t invest in to another angel – not only will it hurt your
reputation, it might hurt the entrepreneur’s ability to approach the investor
from another point of entry.

Do look for teams
of two to three founders, optimally one who can build and one who can sell.
Avoid founders who have never sold anything.

Don’t be tempted
by non-standard investment models by positioning yourself as a hybrid
investor/consultant or investor/incubator. Your competitive advantage as an
angel is that you are “first and fast” with capital.

Do beware of
companies with outsourced development. The company should have control of the
technology and the product.

Don’t bother
asking a company for a business plan. No one does them anymore, and they are
always based on guesswork even under the best of circumstances.

Do say “no” fast.
It’s not wrong to stop an entrepreneur in the middle of a pitch if you know
it’s not the right deal. Don’t be afraid to say “no” at a meeting, and when in
doubt, say “no.”

Don’t spend
longer than two weeks evaluating a deal. You should be able to close a deal
within four to twelve weeks.

Do remember that
the most probable outcome for any start-up is that the investors and founders
will stop funding it, and it will just die.

Don’t expect to
get a board seat as an angel investor. That’s not the role of angels.

Do invest with
other angels whenever possible. It’s harder for a founder to run from 20 people
than it is to run from one person.

Don’t invest in
companies that are selling more than 20 percent of their equity in the seed
stage. There’s going to be too much dilution down the line.

Comments

Earlier in the summer, Fenwick hosted a program for new
angel investors with RockHealth. As part of the
event, Ash Fontana of AngelList presented a primer for new angel investors
that included a dozen dos and don’ts that are worth repeating.

Don’t recommend a
deal you wouldn’t invest in to another angel – not only will it hurt your
reputation, it might hurt the entrepreneur’s ability to approach the investor
from another point of entry.

Do look for teams
of two to three founders, optimally one who can build and one who can sell.
Avoid founders who have never sold anything.

Don’t be tempted
by non-standard investment models by positioning yourself as a hybrid
investor/consultant or investor/incubator. Your competitive advantage as an
angel is that you are “first and fast” with capital.

Do beware of
companies with outsourced development. The company should have control of the
technology and the product.

Don’t bother
asking a company for a business plan. No one does them anymore, and they are
always based on guesswork even under the best of circumstances.

Do say “no” fast.
It’s not wrong to stop an entrepreneur in the middle of a pitch if you know
it’s not the right deal. Don’t be afraid to say “no” at a meeting, and when in
doubt, say “no.”

Don’t spend
longer than two weeks evaluating a deal. You should be able to close a deal
within four to twelve weeks.

Do remember that
the most probable outcome for any start-up is that the investors and founders
will stop funding it, and it will just die.

Don’t expect to
get a board seat as an angel investor. That’s not the role of angels.

Do invest with
other angels whenever possible. It’s harder for a founder to run from 20 people
than it is to run from one person.

Don’t invest in
companies that are selling more than 20 percent of their equity in the seed
stage. There’s going to be too much dilution down the line.

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